Property Law UK

A mortgage does not have to comply with s2 of the Law of Property (Miscellaneous Provisions) Act 1989. Although s53 of the Law of Property Act 1925 applies, it is far less prescriptive.

On the facts the judge was entitled to find that the mortgage was entered into in breach of the Financial Services and Markets Act 2000, but that it would nonetheless be just and equitable to enforce it.

Facts

H had accepted a number of loans from S Ltd for various property developments, all at interest and secured on property. In this instance he borrowed £1M to purchase a property as his home subject to a charge that described the "debt" and "interest rate" as in accordance with the offer letter. In fact, there was no offer letter, although there had been discussions about the terms of the loan and agreements about the rates of interest. H subsequently challenged the validity of the charge on various grounds:

That it did not identify the loan or rate of interest;

That it did not comply with s2 of the Law of Property (Miscellaneous Provisions) Act 1989 or s53 Law of Property Act 1925.

That it was entered into in breach of the Financial Services and Markets Act 2000.

The trial judge upheld the validity of the charge. H appealed on all points.

Decision

The appeal was dismissed.

The judge had held that H was bound by an oral agreement about the loan and rate of interest as a result of estoppel by convention. Lord Neuberger agreed. The same result could have been arrived at through ordering rectification of the Charge.

The section 2 point was hopeless. It proceeded on a fundamental misunderstanding of the reach and purpose of that section. Lord Neuberger at para 27:

contracts for

which actually create or transfer

Although section 53 of the 1925 Act applied to the creation of a mortgage, it is far less prescriptive. Section 53 merely requires the arrangement to be in a document signed by the person creating or disposing of the interest.

Section 19 FSMA 2000 bars anyone but an "authorised person" from carrying on a "regulated activity" in the United Kingdom. An activity is a "regulated activity" if, among other things, it is "an activity of a specified kind which is carried on by way of a business" and "relates to an investment of a specified kind" or "in the case of an activity of a kind which is also specified for the purposes of this paragraph, is carried on in relation to property of any kind". The FSMA 2000 (Regulated Activities) Order 2001 specifies kinds of activities for the purposes of section 22 of the Act including certain activities relating to "regulated mortgage contracts".

Art 3A of FSMA 2000 (Carrying on Regulated Activities by way of Business) Order 2001 provides that a "person is not to be regarded as carrying on by way of business an activity…unless he carries on the business of engaging in that activity".

The trial judge concluded that the making of the loan to H involved the "carrying on by way of business" within the meaning of FSMA. S Ltd was not an "authorised person". The civil consequence of a breach is that the agreement is unenforceable but the judge nonetheless decided that it would be just and equitable to enforce the charge under section 28(3). He took into account a number of factors including that it was reasonable for S Ltd to fail to realise that FSMA was in point. Lord Neuberger expressed doubts about this, taking the simple linguistic point that a person cannot believe that he is not contravening a rule if he is wholly unaware of the rule. However, it was unnecessary to decide the point since the judge had still reached the right decision.

Comment

Courts strive to uphold agreements. Here, an omission was cured by estoppel by convention. As Lord Neuberger recognised, the same result could have been achieved by rectification (see Swainland Builders Ltd v Freehold Properties Ltd [2002] EGLR 71). Sometimes, it is also possible to correct mistakes by construction (see Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101).

As Lord Neuberger also noted, it is not uncommon for litigants to wrongly assume that s 2 of the Law of Property (Miscellaneous Provisions) Act 1989 applies to documents that create interests, including mortgages. Although he did not refer to it, there is already clear Court of Appeal authority on this point – Eagle Star Life Insurance Co Ltd v Green [2001] EWCA Civ 1389

Litigants also invariably overlook the statutory application of FSMA 2000, and this case provides a useful summary of some of the principles involved in checking whether there has been compliance by an authorised person in carrying on a regulated activity. Similar principles apply in respect of regulated consumer credit agreements under the Consumer Credit Act 1974 (see the licensing requirements in Part III of the Act and the sanctions for non-compliance in section 40).

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